SEC Chair Warns: $68 Trillion in US Stocks Set for Tokenization Countdown, Traditional Infrastructure at Risk of Collapse

SEC Chairman Paul Atkins announced last week that tokenization could become a core feature of the US market “within a few years,” marking the most significant change to US equities infrastructure in decades. The total value of the US stock market is around $68 trillion, but currently only $670 million exists on-chain in tokenized form, accounting for less than 0.001%.

The Global Race Behind the SEC’s Policy Reversal

Atkins’ remarks are a stark departure from the SEC’s previous stance, indicating that the modernization of US market infrastructure is progressing faster than expected. This shift is partly driven by global competition—Singapore and Hong Kong have already launched tokenized bond programs, digital fund structures, and bank-issued blockchain settlement systems, making far more progress than the US. The SEC realized that unclear rules could push tokenization overseas, especially as synthetic or wrapped products still face legal uncertainty.

Atkins believes tokenization can improve predictability and reduce risk by narrowing or eliminating the gaps between trade execution, payment, and final settlement. The possibility of intraday or real-time settlement is a key reason regulators are reassessing how digital assets can fit into existing rules. After FTX collapsed in 2022, LedgerX continued to operate under CFTC oversight, demonstrating that the US regulatory system can effectively protect customer assets when applied to native digital systems. As a result, financial regulators see an opportunity to channel tokenized settlements into regulated venues.

The SEC is developing a “token classification framework” based on the Howey Test, aiming to explain how networks mature, distribute control, and ultimately operate without an identifiable issuer. This classification system is intended to define which digital assets fall under the SEC’s jurisdiction. Commissioner Hester Peirce described this new approach as “fast, cautious, creative, and practical.”

The Life-or-Death Battle Between Traditional and Decentralized Finance

(Source: FliptheNasdaq)

Tensions in the industry were clear at the SEC Investor Advisory Committee meeting. Citadel Securities urged the SEC to ensure that all intermediaries involved in tokenized securities trading (including decentralized protocols) are identified and subject to existing exchange and broker definitions. The largest compliant US crypto exchange argued that imposing broker-dealer level obligations on decentralized systems is operationally incompatible and could introduce new risks by forcing protocol takeovers or gaining control.

These differences reflect divergent visions of how tokenized market infrastructure should be built. One model aligns with the traditional intermediary system; the other relies on programmatic, non-custodial protocols. Commissioner Caroline Crenshaw noted that some tokenized stocks sold as “wrapped securities” may not reflect the same economic rights, liquidity conditions, or protections as the underlying instruments, potentially requiring new rules.

Nasdaq’s pending rule-change application adds urgency. The exchange has proposed keeping front-end trading unchanged while allowing tokenization at the DTCC post-trade layer. The SEC must respond this month, and the decision could affect how other market participants design tokenization strategies.

Technical Bottlenecks and the Risk of Traditional Infrastructure Collapse

The practical barrier to widespread tokenization is the scale of US equity market activity. Nasdaq processes about 2,920 trades per second, with daily trading volume around $463 billion. In contrast, while public blockchains can improve post-trade workflows, their performance and reliability are currently no match. To bring a significant portion of US securities onto blockchain systems would require major upgrades to clearinghouses, custodians, brokers, and digital asset networks.

RWA.xyz data shows that the total value of on-chain real-world assets has grown to about $35.8 billion, roughly double the level at the end of 2024. While small relative to the entire financial system, this growth shows increasing comfort with representing traditional assets on-chain. If the SEC ultimately finalizes classification standards and resolves the TradFi-DeFi conflict, the current $670 million scale of tokenization could expand significantly in the coming years. However, if rules remain unclear, capital may continue to flow to jurisdictions with more mature frameworks.